Q1 2025 Strategic Education Inc Earnings Call

Speaker Change: Hello and welcome to Strategic Education First Quarter 2025 Results Conference Call.

Speaker Change: I will now turn the comments over to Terese Wilke, Senior Director of Investor Relations or Strategic Education. Miss Wilke, please go ahead.

Speaker Change: Thank you. Hello everyone and welcome to Strategic Education's conference call in which we will discuss first quarter 2025 results.

Speaker Change: With us today are Robert Silberman, Kermann, Karl McDonnell, President and Chief Executive Officer and Daniel Jackson, Executive Vice President and Chief Financial Officer. Following today's remarks, we will open the call for questions.

Speaker Change: Please note that this call may include form looking statements may pursuant to the safe harbor provisions of the private security's litigation reform act of 1995.

Speaker Change: The statements are based on current expectations and are subject to a number of assumptions, uncertainties and risks that strategic education has identified in today's press release that could cause actual results to differ materially.

Speaker Change: Further information about these and other relevant uncertainties may be found in strategic education, most recent annual report on form 10 pay.

Speaker Change: the TENQ to be filed and other filings with the Securities and Exchange Commission, as well as Strategic Education's future AKs, TENQs and TENKs.

Speaker Change: Copies of these filings and the full press release are available for viewing on the website at strategiceducation.com And now I'd like to turn the call over to Karl. Karl, please go ahead.

Karl: Thank you, Terese and good morning, everyone. We are pleased with our first quarter 2025 results reported this morning which demonstrates the strength of our ETS division and our employer strategy in U.S. Higher Education.

Karl: SEI's revenue grew by 5% in the first quarter and our adjusted operating income increased 16%.

Karl: Our operating margin increased to 13.6% while adjusted earnings per share grew 16% to $1.29 compared to $1.11 for the same period in 2024.

Turning now to our segment

Karl: During the first quarter total enrollment in U.S. higher education slightly increased, driven by continued strong employer-affiliated enrollment, which rose 7% from the previous year, offset by lower unaffiliated enrollment.

Karl: As of the first quarter, the percentage of total US higher education enrollment from our corporate partnerships is now 31% an increase of 200 basis points from the prior year marking an all-time high.

Karl: That enrollment decline was partially offset by growth in our domestic market, consistent with our strategy to shift the bulk of our enrollment growth in the coming years to the domestic

Speaker Change: A&Z's revenue increased 6% for the quarter on a constant currency basis, primarily driven by pricing. A&Z reported an operating loss of 2.2 million in the first quarter, reflecting a slight improvement from the previous year.

Speaker Change: As we've noted before, ANC revenue in the first quarter represents at low point for the year attributed to fewer instructional days during the Australian summer. Conversely, ANC expenses are incurred more consistently throughout the four quarters of the year.

Speaker Change: Sophia Learning Subscriptions, Higher Employer, Affiliated Enrollment, and Revenue from New Workforce The Edge Employer Partnerships Drove This Growth.

Relationships increasingly become a larger part of Sophia .

Speaker Change: During the quarter, Workforce Edge added two additional corporate partners, bringing the total to 78, collectively employing about 3.9 million employees.

in February of this year.

We announce that our decade-long relationship with Best Buy...

Speaker Change: The nation's 16th largest retailer has expanded into an all-inclusive partnership with Strayer University's Degree and Work Program, enabling all full and part-time employees at Best Buy to earn a degree at no cost to the employee.

Speaker Change: In addition to expanding the scope of its education benefits, Best Buy will also become a workforce that's client further strengthening our relationship with Best Buy as they continue to prioritize the well-being of their employees.

Finally, concerning capital allotation [inaudible]

In addition to our regular quarterly do-it-in...

Speaker Change: We repurchased approximately 390,000 shares of our common stock for a total of 32 million dollars during the quarter, leaving us with $197 million remaining in our share repurchase authorization through the end of this year.

Speaker Change: And finally, as always, I'd like to take this opportunity to thank all of my colleagues here at SEI for their ongoing commitment and support to our students, learners, and employer partners.

And with that, Talanda, we'd be happy to take questions.

Speaker Change: Thank you. Ladies and gentlemen to ask the question, please press star 11 on your telephone. They are waiting for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.

Speaker Change: Our first question comes from the line of Jeff Silber with BMO Capital Markets. Your line is open.

Speaker Change: Thank you so much. What a focus first on U.S. higher education enrollment.

Speaker Change: We've seen growth slow. This past quarter was relatively sladdish on a Eurobeer basis.

Speaker Change: The other companies in the state seem to be seeing growth slowing but not nearly as dramatically as what you've been posting Is there anything specific going on changing your marketing matches? You know any color would be helpful?

Speaker Change: I'd say that what we're seeing is part of just the normal cyclicality that at least we've seen over the years with our enrollment

Speaker Change: You'll recall that when we were growing, you know, 10% or even above, we thought that that was probably not sustainable over the long term.

Speaker Change: And is there anything that you can do maybe to get to that miss from a budget level a little bit quicker?

Speaker Change: Well, our corporate partnerships remain very strong, and we suspect that they'll continue to be a source of strength for us as we add partnerships and deepen our relationships and workforce edge. And ultimately, we remain confident that the unaffiliated students will return to mid-single-digit growth as well.

Speaker Change: All right, great. I'll let somebody else ask about Australia and New Zealand, but just had a question on EPS. The numbers have been really solid. You know, much better than we had thought. What do you think it is driving that is something you're doing is at the end market demand. Again, any color would be great.

Speaker Change: Well, the strength of Sofia is both reflected in the strength of its product. It has a very high net promoter score, so we know that the subscribers there really value the product. We have added, I'd say, pretty sizable incremental marketing investments in Sofia that have a very near term ROI for us.

Speaker Change: Workforce Edge, we just have clients that are beginning to mature so as you heard, we have now 2,300 students and neither Strayer, Capella, and then our non-workforce Edge corporate partnerships, they're doing well also. So it's a combination of all three of those levers in ETF.

Alright, that's really helpful. Thanks so much.

Least job.

Please send by for our next question.

Speaker Change: Our next question comes from the line of Alex Parrots with Bearington Research. Yelana's open.

Alex Parrots: Thank you and thank you for taking my questions and I will

Alex Parrots: Focus my questions on ANZ. But one last question on US higher education. Any comment about persistence? That's a number you typically give.

Alex Parrots: The percentage of students who successfully complete their courses and earn credit has been near all time highs, but by and large, our persistence rates are pretty stable. Alex.

Alex Parrots: Great, thank you. So moving on to Australia New Zealand.

Alex Parrots: I was a little surprised to see international enrollment down this early in the year. I understand the regulatory changes, I think, going on in Australia. And I didn't think that would really be a factor until the second half as you approach these, these, these, um,

Alex Parrots: I guess it's two parts. Please discuss international enrollment and then maybe a little additional color on the increase in domestic enrollment.

Alex Parrots: Well, taking the latter part of your question first, we have increased our domestic marketing.

Alex Parrots: It's been part of our strategy now for the last really couple of years to focus more on the domestic Australia market so that's something that we intend to continue this year and beyond.

Alex Parrots: I'd say one change, Alex, with regard to international enrollment that certainly we experienced is that historically one of the biggest drivers of growth for us is not necessarily offshore students coming into Australia on basis for the first time, although we do do that.

The Australian Ministry of Education

Alex Parrots: put into place a new regulation this year in the first quarter that requires all institutions to go through the same verification process for transfer students that we do for offshore students.

Alex Parrots: and there's a list of anywhere from half dozen to a dozen items that we have to verify on the part of the student.

Alex Parrots: and the aside from just the administrative burden of that, the net effect is fewer students are transferring as a result, and I'd say that was the primary driver of our decline in the first quarter.

Alex Parrots: Gotcha. Okay, that makes sense. Thank you for that. And then lastly, Allah.

Speaker Change: Ask you a question about adjusted OPEX. Adjusted operating expenses were of 2.9% versus revenue growth of 4.6%. So you got some leverage there that adjusted operating expense number was better than our estimate.

Speaker Change: Hey Alex, we're still on track for what we said in the recent past on expense growth for the year. The first core was a little bit better primarily because of some headcount timing, some of it at ETS, but we're still planning to spend invest the same amount of ETS. It's

Gotcha, and then...

The

Uh...

Speaker Change: And then the long-term model calls for 200 basis points of adjusted operating income improvement. And I realize you don't give guidance for one year at a time, but I think you had kind of alluded to the fact that it would be a good proxy for 2025. We still feel good about adjusted operating.

Speaker Change: Margin Expansion in 2025, given the slightly lower enrollment numbers than I had previously expected

Alex Parrots: Yes, Alex, we do. We feel like I'll be at it's early, it's the first quarter, but yes, we feel confident that our 2025 performance would be in line with our

Alex Parrots: Good to hear. Thank you very much. It's all for me today. Thanks Alex.

Thank you. Please say bye for our next question.

Speaker Change: Our next question comes from the line of Jasper Bibb with Truace Securities. Your line is open.

Jasper Bibb: Good morning, everyone. I'll start with another A&D Enrollment question. Can you just frame for us the I guess domestic, Australian citizen or permanent Australian resident enrollment on this percentage of A&D today versus?

Jasper Bibb: I guess what part of the enrollment base is international offshore or international transfer students.

Yes, so Jasper, historically.

Jasper Bibb: An average new cohort of students would have been roughly 50-50-50% domestic enrollment, 50-percent international of the half that's international, at least in the recent trends, I'd say.

At least two-thirds of that would be on short transfer

Jasper Bibb: maybe even slightly more actually. In the first quarter, given that we had growth in the domestic market of decline international, the mixed percent shifted obviously more to domestic. That's something that we're working towards. We want more of our enrollment to be from the domestic Australian market.

Jasper Bibb: We're working through the verification process for both offshore and onshore transfers and you know that remains to be seen what will happen this year based on whatever demand there is.

Jasper Bibb: The ETS are in New York, Accelerated, Nicely, this quarter. I think on a four-q call you talked about the launch of a large employer partner at the end of last year. To the extent you can, you have just got to get the son had that much is going.

Jasper Bibb: for how that might be impacted ETS expectations for the year.

Jasper Bibb: Yeah, the launch has been received well by our clients, where I would say we're essentially fully staffed now to serve that higher touch model.

Thank you.

Speaker Change: You know, you already addressed kind of margins versus the notional model, but on revenue, I think the notional model called for the 6% revenue growth.

You still, I guess, feel confident that...

Jasper Bibb: $25,000 revenue was aligned with that, I guess, in this framework.

Yep, we are.

That's it for me.

Thanks, Jasper.

Thank you

Speaker Change: Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Karl for close and remarks.

Jasper Bibb: Thank you everybody. We look forward to discussing our second quarter results with you in three months time.

Jasper Bibb: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.